Price Waterhouse says Satyam audits unreliable

MUMBAI, India 
Price Waterhouse, auditors of the troubled Indian outsourcing giant Satyam Computer Services Ltd., said Wednesday that its audit reports for the last eight years relied on potentially false data provided by the company and should be disregarded.

"Our audit reports and opinions in relation to the financial statements for the Audit Period should no longer be relied upon," Price Waterhouse wrote in a letter to Satyam's new board of directors, which was filed with stock exchanges in India and New York, as well as government and regulatory authorities in India.

Price Waterhouse, the Indian firm that is part of the global PricewaterhouseCoopers International Ltd. network, said it had relied on information from Satyam's management and as a result its assessments of the company "may be rendered inaccurate and unreliable."

Price Waterhouse's comments did little to assuage investors, who say the auditing firm should have been able to root out $1 billion in fictitious cash deposits. Several are contemplating legal action against the firm.

"This is the basics. When you are doing an audit and a client says I've got a billion bucks in the bank, you check with the bank that it's there," said Hugh Young, who oversees $30 billion in assets as the managing director of Aberdeen Asset Management's Asia funds. Young has not ruled out legal action.

Aberdeen bought 1.2 million shares of Satyam in October, according to a filing with the Bombay Stock Exchange. But Young said Aberdeen sold its shares on Jan. 7 after Satyam's founder and former chairman B. Ramalinga Raju confessed to doctoring the company's books for years.

Ravi Nath, an attorney at Rajinder Narain in New Delhi, said that clients have approached him about suing Satyam and Price Waterhouse but that as far as he knows no suits have been filed against either company in India.

"Can the auditor say we were shown these scraps of paper and our responsibility ends there?" Nath said. "No. Auditors are required wherever possible to check the veracity of the information supplied to them."

Nath said that under Indian law, Price Waterhouse's partners could be exposed to unlimited liability.

"If there is a claim Price Waterhouse can't pay, the claimant can go after the individual fortunes of each of the partners," he said.

Holders of Satyam's U.S.-listed shares – which have been halted from trading on the New York Stock Exchange while regulators investigate – have filed at least two class action suits against Satyam.

Satyam said Wednesday night they had appointed Deloitte and KPMG to assist the company in restating its accounts.

On Tuesday, senior police official V.S.K. Kaumudi said the offices of Price Waterhouse in the southern Indian city of Hyderabad, where Satyam is headquartered, were being searched.

Price Waterhouse has said there was no "raid" at its office and that it was cooperating fully with investigators.

Price Waterhouse spokespeople in India did not respond to requests for detailed comment Wednesday, but did say the firm had retained J Sagar Associates as legal counsel.

Three Satyam executives – Raju, his brother B. Rama Raju, who served as Satyam's chief executive, and Satyam's former chief financial officer, Srinivas Vadlamani – have been arrested on charges including cheating and forgery.

(This version CORRECTS the name of the accounting firm to clarify it is a subsidiary of PricewaterhouseCoopers International.)